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Using Panel Data to Test for Fiscal Sustainability within the European Union

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Author Info
Silika Prohl
Joakim Westerlund
Abstract

Most empirical evidence suggests that the sustainability hypothesis, stating that government revenues and expenditures should cointegrate with a unit slope on expenditures, does not hold within the European Union, a finding at odds with many theoretical models. This paper argues that these results can be attributed in part to the use of inappropriate time-series techniques, and that the use of panel data can generate more accurate tests. By using newly devised panel unit-root and cointegration techniques it is shown that the sustainability hypothesis cannot be rejected when applied to a panel composed of 15 European countries between 1970 and 2004.

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Publisher Info
Article provided by Mohr Siebeck, Tübingen in its journal FinanzArchiv.

Volume (Year): 65 (2009)
Issue (Month): 2 (June)
Pages: 246-269
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Handle: RePEc:mhr:finarc:urn:sici:0015-2218(200906)65:2_246:updttf_2.0.tx_2-7

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Related research
Keywords: fiscal sustainability; panel unit root; panel cointegration;

Find related papers by JEL classification:
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions
C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data
H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

Statistics
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This page was last updated on 2009-12-1.

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